What is a family limited partnership (FLP) in Illinois?

Family Limited Partnerships Explained

Updated on:
November 20, 2018

In this article, we will explain family limited partnership and discuss the different assets that can be protected, the benefits of FLPs, and the differences between FLPs and Family LLCs. FLPs allow financially-savvy families and seasoned investors to combine their money and undertake projects that may or may not be possible for a single family member, due to lack of funds or business experience.  They also provide protection from creditors, estate planning benefits, and tax benefits.  

What is a family limited partnership (FLP) in Illinois?

If you are part of a family business, you may want to consider a family limited partnership (FLP). FLPs are valuable for a variety of reasons, including generation-to-generation estate plan security, protecting assets from potential creditors, and minimizing income, gift, and estate taxes.


A family limited partnership is a special form of limited partnership where family members serve as both general and limited partners. General partners run the business and hold the majority of liabilities, while limited partners don’t have a say in day-to-day operations and are not responsible for debt. In order to pass this partnership down to children and grandchildren, the senior family members would typically gift a portion or all of their limited partner interest.


FLPs can protect a significant portion of the following assets:

  • Cash
  • Stocks, bonds, and other investments
  • Vehicles
  • Real estate
  • Antiques, art pieces, and collectibles
  • LLC memberships
  • Copyrights, patents, and other intangible assets
  • Claims against others
  • Notes, mortgages, and other obligations
  • Beneficial interests in trusts

Family Limited Partnerships vs. Family LLCs


FLPs are often used for similar purposes as Family LLCs (FLLCs).  You should speak to your attorney and accountant to determine whether a FLP or an FLLC would be a better fit for your goals, or whether they should be used in combination.  However, FLLCs tend to provide greater liability protection while FLPs offer unique estate planning and tax benefits.  


For a more in-depth discussion of this topic, check out our article: What is the Difference Between a Family Limited Partnership and an LLC?

What are the benefits of forming an FLP in Illinois?

  • Protection from Creditors: Holding an asset in an FLP rather than in your individual name can protect it from creditors.  To learn more about this, check out our article: How to Protect Assets from Creditors.
  • Estate planning; many families use family limited partnerships to shift estate tax burdens from parents to children. When the interests are transferred to children, the parents escape inclusion in their estate when they die. Only the value of the taxable gifts at the time they were transferred to the FLP are included for purposes of estate taxes.  For more on this, check out our article: How to Avoid Estate Tax.
  • Transferring of ownership; FLPs allow business owners to set up family members as limited partners, where they can transfer partnership interests over time.
  • Income tax benefits; excluding the estate planning advantage, families can reduce their taxes by sharing partnership income.


Can a Family Limited Partnership own an LLC?

Yes. However, you generally shouldn’t use a limited partnership to operate a business, unless your general partners are LLCs or corporations, because the general partners would be liable for the partnership debts. Be sure to use a corporation or limited liability company to operate your business.

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O'Flaherty Law is happy to meet with you by phone or at our offices in Downers Grove, Elmhurst, Naperville, St. Charles, Lake in the Hills and Tinley Park, Illinois.

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What are the benefits of forming an FLP in Illinois?Can a Family Limited Partnership own an LLC in Illinois?Family Limited Partnership in Illinois ExplainedHow to form a Family Limited Partnership in IllinoisWhat is the purpose of a limited partnership in Illinois?How many partners can a family limited partnership have in Illinois?

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